by Pinchas Cohen
The Week That Was
The global equities express train kept chugging along last week, making ongoing, fresh records on little volatility, while Treasury yields fell.
Oil regained some of its recent losses but range-trading could continue.
US Retail Sales Recover
After the previous, August read which saw a 0.2 percent decline, September's release showed US retail sales leaped, comparatively, by 1.6 percent. However, as we’ve repeatedly warned, these numbers do not necessarily point to a trend since higher gasoline prices after Hurricane Harvey provided a boost to the overall retail sales metric. Still, an uptick in auto sales also contributed to the number.
IMF Upgrades Global Growth
In support of the global growth story, the International Monetary Fund forecast a 3.6 percent expected expansions and 3.7 percent for next year, a 0.1 percent increase from its July forecast. It isn’t much, but it’s definitely a step in the right direction.
Brexit Negotiations on the Rocks
The EU insists Britain pay its “divorce bill” before negotiations on trade can resume. The ongoing deadline uncertainty keeps pressuring the pound, though it's a boost to UK equities, thanks to more competitive exports and cheaper equity prices in foreign currencies.
December Fed Hike Trajectory Remains On Course
The Fed minutes revealed that “many” members thought another rate hike in 2017 was appropriate, providing no economic surprises appear.
Trump Goes It Alone on Healthcare Reform (For Now)
US President Donald Trump sidestepped Congress's inability to pass healthcare reform, and signed an executive order proposing his own agenda for healthcare. According to the specifics of his order, small businesses may form groups to lower costs of coverage; as well, insurers will be allowed to provide coverage in states outside their current purview. Many see this as his way of once again resurrecting an agenda he's refused to let die.
ECB Policy Revving Up
Reports on where the ECB now stands on its economic policy have been proliferating, but each report seems to portray a different policy stance. For instance: the European Central Bank is cutting in half the pace of its European bond purchasing, from 60 billion to 30 billion euro, beginning in January, while keeping the program active for at least nine months. Across the pond ECB boss Mario Draghi said that policy rates would not be hiked until well past the end of the QE program.
Thus far, investors have been focusing on the lack of rate hikes rather than the QE reports. Yields on the 10-year German bund fell 4 basis points on Friday to 0.41 percent.
After Friday's disappointing CPI release, bonds rallied and US 10-year yields fell.
The Week Ahead
All times EDT
Sunday
9:00: Fed Chair Janet Yellen Speaks: Fed Chief Yellen will join her counterparts from China and Japan at the G30 International Banking Seminar in Washington D.C. Her speech follows last week's release of the FOMC Minutes which shed light a divided Fed. Nevertheless, it's clear that a mostly united Fed supports a December hike, as long as the economy remains on track and despite a stubbornly low inflation rate. In the background is the fact that her term is nearing its end and uncertainty looms regarding whether President Trump will renew her term or appoint a new Fed boss. Any change may see considerable market volatility, especially when both global and US equities are at record highs.
21:30: China – CPI (September): forecast to rise to 1.6% YoY from 1.8% previously, and 0.4% MoM, in line with the previous month.
Monday
8:30: US – Empire State Manufacturing Index (October): expected to fall to 20.8 from 24.4.
Gold jumps on USD weakness. If US data disappoints this coming week, the yellow metal's return above the $1,300 support level could be the start of another leg higher.
Earnings Report After Market Close
- Netflix (NASDAQ:NFLX) Q3 2017 earnings report: EPS forecast at $0.32, vs $0.12 YoY
Tuesday
4:30: UK – CPI (September): forecast to rise to 3.1% from 2.9% YoY, but rise by only 0.3% compared to 0.6% MoM. Core CPI forecast to rise 2.8% from 2.7% YoY a month earlier.
5:00: Germany – ZEW Economic Sentiment (October): economic sentiment index expected to rise to 20 from 17.
6:00: Eurozone – CPI (September, final): YoY reading expected to remain at 1.5%.
Earnings Reports Before Market Open
- Morgan Stanley (NYSE:MS) is scheduled to report Q3 2017 earnings: EPS expected at $0.81, vs $.80 YoY
- CSX Corporation (NASDAQ:CSX) is scheduled to report Q3 2017 earnings: EPS expected at $0.51 vs $0.48 YoY
Wednesday
4:30: UK – Employment Data: September claimant count forecast to rise by 8500 from a 2800 fall a month earlier, while August unemployment rate forecast to be 4.4% from 4.3%. Average earnings including bonus expected to rise 1.7% from 2.1% a month earlier.
8:30: US – Housing Starts and Building Permits (September): permits expected to fall 0.4% from 3.4%, while starts forecast to fall 0.5% from 0.8%.
The US dollar has found support at its broken downtrend line since April. A breakout above that neckline will send it to the older downtrend line since January, signaling the end of the Trump Trade.
Earnings Reports Before Market Open
- Goldman Sachs (NYSE:GS) scheduled to report Q3 2017 earnings: Consensus EPS is $4.17, on a 7.7 percent YoY decrease to $7.54 billion. P/E of 12.8 vs a 5-ear average of 12.9.
- Verizon Communications (NYSE:VZ) scheduled to report Q3 2017 earnings: EPS expected at $0.98 vs $1.01 YoY
10:30: US – EIA crude inventories (w/e 13 October): previous week saw a drop of 2.7 million barrels.
20:30: Australia – Employment Data (September): unemployment rate expected to remain at 5.6%, while 14,400 jobs expected to be created, from 40,100 the month before.
22:00: China – GDP (Q3): QoQ rate expected to slow to 1.4% from 1.7%, while YoY figures fall to 6.8% from 6.9%.
Chinese President Xi Jinping is scheduled to deliver opening remarks at the 19th National Congress of the Communist Party of China, which will appoint him for a second five-year term. This would be an appropriate time to reveal the party’s goals for the next five year-term. It would likely include its attempt to strike a balance between its economic growth and increasing regulations to limit financial risk. These remarks hold high potential to create ripple effects in FX and other markets – including cryptocurrencies, commodities, equities and bonds.
Earnings Report After Market Close
United Continental Holdings (NYSE:UAL) scheduled to release Q3 2017 earnings: EPS expected at $s vs $3.11 YoY
Thursday
4:30: UK – Retail Sales (September): sales expected to rise 0.3% MoM from 1%, while YoY rate slows to 1.1% from 2.4%.
8:30: US – Initial Jobless Claims (w/e 14 October), Philadelphia Fed Manufacturing Index (October): claims forecast to fall to 236K from 243K; Philly Fed index to drop to 22 from 23.8.
Friday
8:30: Canada – CPI (September), Retail Sales (August): YoY price growth forecast to rise to 1.6% from 1.4%, and remain at 0.1% MoM. Retail sales forecast to hold at 0.4%.
Earnings Report Before Market Open
- General Electric (NYSE:GE) is scheduled to report Q3 2017 earnings: Expected EPS ta $0.5 vs $0.32 YoY. The technology giant has hit a rough patch recently, including the surprise resignations of two key executives. Will Friday's earnings release help or hurt this Dow component?
10:00 – US Existing Home Sales (September): MoM rate expected to improve to -1.5% from -1.7%.